August 29, 2017, 7:10:30 PM EST
by Newsmovesmarketsforex Staff Writer
What is FX price action?
The Forex market witnesses billions of dollars’ worth of Forex trade deals on a daily basis. It is a global marketplace which in heavily influenced by news releases and information concerning macroeconomic indicators and geo-political events.
The Influences of Macroeconomic Data on the Forex Market
The Forex market is mainly driven by important macroeconomic data that portray the overall health of a country’s economy.
The currency of a country only remains strong if its macroeconomic indicators are positive. Changing internal and external political conditions, trade dynamics, and investment opportunities all contribute toward shaping the Forex market and determining the price movements of various currency pairs.
An experienced Forex trader is well-aware of the fact that news about the economic conditions of a country has a great impact on the direction in which its currency will move. This is the reason why successful Forex traders are always on the lookout for the latest economic facts and figures to help them make beneficial Forex trade deals.
Major Factors Influencing the Price Movement of Currencies
- Inflation Rates
The inflation rate is one of the major factors that influence the direction in which the currency of a country moves. A low inflation rates usually appreciates the value of a currency because of the slow rise in prices of the goods and services in that country.
On the other hand, a high inflation rate has the opposite effect on the value of its currency.
Experienced Forex traders eagerly await the monthly, quarterly, and annual inflation rate reports issued by a country’s central bank. Based on the data contained in these reports, they then use an appropriate analysis method to determine the future trends of various currency pairs. This allows them to make profitable trade deals and reap rich financial rewards.
- Current Account or Balance of Payments
A country’s current account position paints a fairly accurate picture of how well’s the country is doing on the trade front. If a country’s exports are greater than its imports, it will have a positive trade front.
On the other hand, a negative trade account shows that its imports exceed its exports. This is an undesirable scenario as it puts pressure on the country’s foreign exchange reserves and tends to bring down the value of its currency.
Novice traders must take into account a country’s balance of payments position before investing its currency. If there are downward pressures on its current account, it would be wise to avoid investing in its currency until its balance of payment shows improvement.
- Debt Levels
The national debt is a key economic figure that influences the price movement of a particular currency. High levels of debt usually lead to high levels of inflation. This discourages Forex investors from buying that country’s currency, at least in the short term.
If the debt level of a country is comparable to a sizeable proportion of a country’s economy, there is a fair chance that the country might default on its debt repayments. In such circumstances, it would be unwise to invest in that country’s currency.
- Foreign Exchange Reserves
Another important factor that determines the value of a particular currency is the foreign exchange reserves that a country possesses. High levels of foreign exchange reserves boost the strength of its currency.
Forex traders must regularly monitor the foreign exchange reserves of various countries. Sliding reserve levels usually indicate negative forces on a country’s currency; investors must pull out before its value falls further.
- Political Instability
Internal or external political uncertainties can also lead to downward pressures on the value of a country’s currency. Successful Forex traders regularly monitor major international news sources for the latest updates on existing and emerging geo-political issues.
Wars, rebellions, border disputes, terrorism, and various other negative factors can bring down the value of a country’s currency.
In order to make good Forex trade deals, traders must always be on the lookout for news releases that shed light on the latest developments in the local and international political arenas.
News Moves Markets Forex is a reliable provider of real time forex news online. We always have the latest foreign currencies rates updates and detailed analyses of the prevailing market conditions. Our website also contains well-researched educational material to help Forex traders make informed trading decision.